Forex trading is sometimes depicted as an easy way to make a shedload of cash quickly and easily. But as any seasoned pro from the forex world will tell you, it’s not like that at all. Over $5 trillion dollars of value can be traded through this market every day, however, you won’t be a successful trader in that huge market without first doing your research and working hard.
In fact, the forex world has all sorts of individual quirks which can make it more difficult to conquer. Not only is it more complex from the start due to the instruments being traded in pairs, it’s also a truly global market which can change substantially – even as you sleep. As a result, it’s wise to get hold of as much information and advice about trading this market as possible. This article will share some top forex trading advice and give you a head start if you’re looking to break into FX trading.
Research and learn
Plenty of spam emails and other scams promise high returns with a minimum of effort when trading forex. But high returns are in fact difficult to achieve. One of the reasons for that is the technical complexity involved in the foreign exchange markets and the mechanics of trading. The economic and political conditions in which each currency operates must be studied: there’s a lot to learn!
Fortunately, there are numerous information sources available online that will prove invaluable when you are conducting research. Look for an economic calendar so that you are aware of upcoming major economic events, annual reports, etc. You will then be ready to take advantage of any occurrences that are likely to influence the market. Access to a global market news source is also essential. Not only will you need to look at financial news; national and international politics can also have a dramatic effect on currency values. The present predicament that the UK government finds itself in regarding the country’s exit from the EU is a very good example of how politics can affect a national currency. A search of the internet will also reveal useful forums that contain comment and feedback from traders. There are also websites that provide very sensible advice about trading. One popular site has posted 28 forex trading tips designed to help anyone starting out in Forex trading.
Choose your analysis type
Once you’ve done your basic research, your first big decision will be whether you want to follow a technical approach to trading analysis or a fundamental one. Those who use technical analysis tend to base their decisions on price data: they will often claim that the behaviour of other traders, both past and present, to buy or sell is all that’s really needed to understand what moves a market. Those who take the fundamental analysis approach, meanwhile, are likely to take a different view. They are more likely to conduct research into the economic conditions around a currency and plan for particular events. Announcements from central banks about interest rate changes, for example, can often cause forex market movements.
There’s no strict need to use just one method and it’s possible to dip in and out of each one. You could decide to use technical analysis as a default, for example, and then zoom in on particular currencies to understand them in a fundamental analysis context when needed. However, when it comes to selecting tools and downloading trading platforms it will probably help to have a clear idea of what sort of information you’ll want to base your trading decisions on.
Prepare to fail – at first
The sad reality of foreign exchange trading is that on some occasions you might find yourself failing. It’s unlikely that you’ll go through even a successful forex career without occasionally making losses. As a result, some diversification – where you spread your investment capital around lots of different currencies – is a good idea. And by working on your mindset, you’ll be able to resist the urge to make instant, non-strategic trading decisions which you later regret. Reading accounts written by more seasoned foreign exchange traders will help with this, as it will give you the inspiration you need to think like a pro – and also make choices like one!
Trading foreign exchange pairs successfully isn’t easy. That still applies even if you have some experience. It’s something that requires a great deal of reading and there’s a lot to get your head around – especially if you’ve never traded financial instruments before. It also requires some early decisions about strategy and analysis methods, and it may even take a slight change in your mindset as well. But by working hard and developing a resilient trading personality, it’s possible to enjoy success further down the line and build a good trading career for yourself.